Lundbeck: Switching Engines

Lundbeck appears well-prepared for generic competition to its blockbuster antidepressant Cipramil. But the company still needs to broaden its pipeline and increase its profile in the US.

With sales growth of 35% in 2001—well above the European drug company average—H. Lundbeck AS has turned itself from a sleepy Danish drug firm into the continent's largest pure-play CNS company. Now, though, the source of Lundbeck's success—blockbuster depression drug citalopram (Cipramil), which last year accounted for more than 80% of sales—is coming under generic pressure. As Lundbeck tackles the challenge of switching to follow-on escilatopram (Cipralex), it must also broaden its marketing and in-licensing activities. And to secure long-term growth, Lundbeck needs to make its own name in the US. For now, though, the company is treading softly.

Lundbeck got off to a slow start. Until the company's current president and CEO Erik Sprunk-Jansen joined Lundbeck in 1987, there wasn't much happening at all: the firm had produced no new drugs for 20 years and sales of its marketed products—which ranged from antibiotics to veterinary medicines—were sluggish. Sprunk-Jansen focused the company's research on CNS, out of which came Cipramil, which was launched in Denmark in 1989.

Cipramil—a selective serotonin reuptake inhibitor—was initially sold only in Denmark and the UK, since Lundbeck lacked the resources at the time to launch Cipramil anywhere else. "We were rather late getting Cipramil onto the main European markets," acknowledges one Lundbeck employee. It was not until the mid-to-late nineties that the company signed up co-marketing partners, such as Almirall Prodesfarma SA in Spain in 1994, Recordati Industria Chimica & Farmaceutica SPA in Italy a year later, and Bayer AG in Germany in 1997. Over the last few years, however, Lundbeck has built up its own marketing operations throughout Europe and now has 300-400 specialist reps selling Cipramil in all the major European countries (where the drug last year recorded an average 40% sales growth). Cipramil remains the most sold prescription drug in Sweden and Finland, according to the company, and has a 50% share of the Nordic market for anti-depressants.

Lundbeck also in 1999 cracked the Canadian market, where sales of Cipramil last year grew 101% to DKr 437.6 million ($54 million). In the US—too big a market for Lundbeck to tackle alone—the company handed over its crown jewel to Forest Laboratories Inc. in 1996 [See Deal], in exchange for an estimated 22% of sales. Forest has turned the drug—sold as Celexa—into a $1 billion product since its launch there in 1998, and it continues to show healthy double-digit growth despite the arrival of generic fluoxetine (Prozac) this year. The US now accounts for 25% of citalopram's top-line contribution (revenues from the drug were up 44% from last year) where Celexa is the third-best-selling SSRI. "Even the most bullish analysts didn't expect us to get more than a 2-5% share of the [US] market, laughing at our expectations of coming in at number five and getting market share," recalls one director at Lundbeck.

Investors rewarded Lundbeck's growth with a 100% share price increase in the first 12 months after its listing in 1999 on the Copenhagen Stock Exchange, and the stock has enjoyed an almost uninterrupted upward ride since (See Exhibit 1). Now, though, the company faces the most important turning point in its 87-year history, the switch from Cipramil—which went off patent in the UK, Ireland, France and Belgium this January—to its follow on compound escitalopram (Cipralex, to be sold in the US as Lexapro), the active isomer of citalopram. "Lundbeck's share price is totally beholden to Cipralex," sums up one London-based analyst.

Lundbeck's done plenty to smooth the path. It has successfully delayed generic competition through building a host of manufacturing patents around Cipramil. "Lundbeck set up a team which did nothing else but think of all the ways you can synthesize Cipramil and patented all of them," explains Jesse Schulman, PhD, a neuroscience and corporate finance consultant at investment bank Friedman Billings Ramsey Group in London. As a result, few generics have materialized, though the product has been off-patent in certain markets since 1999. "Generics companies seem to have enough concerns about their legal positions to hold off," says Schulman. Cheap copies of the drug have only just appeared in Iceland, Holland and Sweden. In Europe's most important generics market, the UK, Alpharma LLC has been held up in court and is not currently selling citalopram, although it got approval for the product in January.

Second, and more importantly, the signs are that escitalopram—which the company has been able to patent as an entirely new drug—has enough advantages over citalopram to be distinguishable from its forbear once generics do arrive. The drug appears to work faster than current antidepressants (escitalopram's effects kick in within one week, whereas with existing products onset of action can take several weeks, with often serious consequences), and may show fewer side effects, since its greater potency allows for lower dosages. Lundbeck won't be allowed to claim onset of action on escitalopram's label (since the studies demonstrating this effect weren't designed to do so), but will certainly push this in its marketing: the company is allowed to show physicians literature and data relating to onset of action, although it can only draw verbal, not written, conclusions from this. (In the US, Forest can go one step further and hand out scientific papers reporting onset of action data; European rules require physicians to specifically request such papers.) Lundbeck has increased its sales force by 500-600 over the last two years, in preparation for Cipralex's launch. "We will have 5000 reps [including those of Forest and of European partners] detailing Cipralex," says a company spokesman. The only confirmed European co-marketing partner at this stage is Recordati.

Escitalopram has just been approved, via the mutual recognition procedure, in ten European countries; Sweden (the reference state) will negotiate further approvals in Spain, Portugal, Italy, Greece and Germany, which are expected next year. The drug is already launched in Switzerland, although is still waiting for reimbursement. Fortunately for Lundbeck, the Northern European states most open to generics are also those likely to agree to reimbursement the quickest.

Timing is less critical in the US, where generics aren't expected until 2005, giving partner Forest a three year lead time from the expected launch in May or June of this year. (Lexapro received an approvable letter from the FDA in January). Forest will also have more freedom than Lundbeck to leverage trial data showing the drug's efficacy in treating anxiety, where SSRI prescriptions are growing twice as fast as for depression. "The success of [GSK's] paroxetine (Paxil) [the second best-selling anti-depressant] rides on anxiety data," says Claus Braestrup, PhD, Lundbeck's EVP, R&D (Paxil and Wyeth 's fourth-ranked venlafaxine (Effexor XR) are the only major anti-depressants indicated for generalized anxiety disorder). US physicians are more likely to prescribe Lexapro off-label for anxiety since, for one thing, off-label prescribing is far more widespread in the US, where physicians are less constrained by reimbursement rules than some of their European counterparts; second, Forest can, here again, hand out the scientific papers relating to anxiety trials before the indication is included on the label. In Europe, more restrictive marketing rules mean "we can't use anxiety [to the same extent] from the beginning," Braestrup explains. Forest and Lundbeck are also doing further head-to-head trials with other SSRIs.

As such, most analysts are optimistic. "Lundbeck will likely make the switch successfully," opines Tatiana Brask, an analyst at WestLB Panmure in Copenhagen, though she cautions that the company will lose market share in Europe. Datamonitor analyst Adam Wickes is expecting Cipralex/Lexapro to become the next blockbuster antidepressant—alongside Lilly's duloxetine, a follow on to Prozac—largely thanks to Lundbeck and Forest's "powerful, proven marketing forces" in Europe and the US respectively. Lundbeck itself is counting on Cipralex/Lexapro's success, since "it will be the focus [at Lundbeck] for many years to come," says Braestrup.

Yet he knows that Lundbeck needs more strings to its bow. Since mid-1999, the company has been aggressively in-licensing, buying drugs such as NMDA receptor antagonist memantine (Ibixa) from Merz GMBH & Co. [See Deal] (an old product already used in Germany for improving mental performance which Lundbeck has filed for severe Alzheimer's), as well as earlier stage products like phase I/II kinase inhibitor CEP-1347 for Parkinson's from Cephalon Inc. , to which Lundbeck keeps European marketing rights [See Deal], plus several preclinical programs. Particularly significant to the company is in-house developed schizophrenia drug sertindole (Serdolect), withdrawn in 1998 for suspected cardiac side effects but which Lundbeck is determined to resurrect. "Three years ago our pipeline was very meager, now it's nice and busy," sums up Braestrup (See Exhibit 2). Drawing investors' attention away from the success of Cipramil/Lexapro won't be easy though. "The quality of Lundbeck's other products is questionable," contends one analyst. "Serdolect and Ibixa are just icing on the cake."

Maybe so. But these products could be worth a lot more to Lundbeck—both financially and as a way of building experience—if the company commercialized them itself in the US, where despite having a blockbuster product, Lundbeck remains virtually unheard of. "Forest got all the glory in the US," says Schulman. Knowing it was on to a good thing, Forest snapped up the rights to escitalopram in March 1998, six months before it had even launched citalopram, for just $32 million, on the same terms as for the earlier drug [See Deal]. Not only did Lundbeck pay all the development costs, but Forest got two other products—an anxiolytic in phase I, and a phase II/III selective muscarinic agonist for Alzheimer's, LU 25-109—thrown into the deal (LU 25-109 failed five months later, however). "People in the industry who know the story feel Forest got an easy ride," sums up Schulman.

From Lundbeck's point of view though, the Forest deals were a blessing. At that stage the company had been rejected by three large drug firms, all of which had competing CNS products of their own. So grateful was Lundbeck to find Forest, that it didn't negotiate a future stake in the product's commercialization—such as the option to market escitalopram to a limited subset of US specialists. "At that point of the negotiations we felt lucky to have succeeded in getting a partner at all," declares Braestrup. "Besides, the real source for sales [of SSRIs] is the GP market; the psychiatric audience is just for establishing opinion about a product." The company says it will never sell a GP product in the US.

Lundbeck is planning its own US entry, though, on the back of other, more specialist drugs. "Serdolect offers Lundbeck a real opportunity to be present in the US," opines Braestrup, adding that a 200-strong sales force is all that's needed to reach psychiatrists there. (The Danish company regained US rights to the drug after it was withdrawn in Europe from development partner Abbott Laboratories Inc. , which had signed up in 1991 when the drug was about to enter phase II but never launched it [See Deal].)

Some analysts don't factor the drug into their valuations at all, however, because Serdolect represents a particularly challenging opportunity. Even though the company has invested significantly in resurrecting the product—whose suspension it disputed from the outset—dispelling the stigma attached to a withdrawn drug won't be easy, especially given the FDA's current cautious stance. "[The product's success] will depend on our ability to communicate the safety data effectively," sums up Braestrup. As such, Lundbeck's establishing Serdolect in the US would represent a double victory—a successful launch, and a successful communication strategy. But here too, Lundbeck is covering its back: if Serdolect doesn't work out, the hope is that phase II bifeprunox, in-licensed from Solvay SA [See Deal], or LU 35-138, an in-house phase I/II dopamine antagonist, will fill the company's current gap in the anti-psychotic area, as well as provide it with the required US foothold.

Lundbeck's slow approach to the US market is similar to that it took in Europe. The company set up a small US office a year ago (primarily for in-licensing) and has been scouting for acquisition targets, so far without success. "We're small and flexible, and take a more opportunistic approach [than larger companies]," explains a spokesperson for Lundbeck. If the right deal comes along, the company will seize it—and even consider a US listing. Yet with this opportunism comes conservatism: "Lundbeck's management is reluctant to get too far ahead of itself in terms of international exposure," offers one analyst. Says another: Lundbeck's management "aren't rough and tumble players."

Yet thanks to Cipralex's success, Lundbeck has so far fared very well going along quietly at its own pace. It made, and won, a risky bet on escitalopram (many single-isomer compounds like Sunovion Pharmaceuticals Inc. /Eli Lilly & Co. 's version of Prozac didn't work out), it has dealt with failure (Serdolect, which the company itself describes as "a major body blow"), and built a focused pipeline and strong European marketing presence. But as Lundbeck grows larger—and potentially frees up more of its shares to the public (the Lundbeck Foundation currently owns 73.6% of the group)—there will be no let-up in investors' demands for growth. As such, the company may not for much longer have the luxury of taking its time. To compete globally, rather than just at a European level, and to secure a future beyond Cipralex/Lexapro, Lundbeck's management may have to learn to rough and tumble.

by Melanie Senior

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